CUPERTINO, CALIF. -- Ripping a page out of the "never-let-a-good-disaster-go-to-waste" playbook, Hewlett-Packard execs said the recession will jump start sales of cloud-based subscription software services into SMB accounts and help VARs move faster into the Software-as-a-Service world.

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With software services, "you're taking the question from a cap ex to an op ex discussion," Duncan Campbell, a vice president with HP's Technology Solutions Group (TSG), told SearchITChannel.com on Wednesday. Capital expenditures typically require higher-level sign off and are subject to different accounting rules than operational expenditures.

Some HP VARs say the vendor's decision to push USA.NET's hosted Exchange and SharePoint services through HP VARs could expand the cloud model in the channel and introduce more partners to the joys of subscription annuities.

One big cloud bugaboo for many traditional partners till now has been that they still rely on big, one-off software license and hardware sales to fuel their business, so they view the move to a gradual revenue stream from subscription services as a threat.

Once they're in the services realm, however, they could benefit from that steady revenue stream and also up-sell and cross-sell additional services into those SMB accounts. And the simple fact is, said several VARs, the recession means a lot of those big upfront fees aren't happening now anyway.

Amy Rutt, owner of Ciracom Inc., a networking services company and long-time USA.NET partner, said the HP name adds luster that will make the hosted services easier to sell into more accounts.

"For customers, the more seamless you can be with your manufacturers and service providers the better service you can provide. We are part of the customer's supply chain and adding HP in this capacity, well, it's an enormous player and adds more credibility to the services," Rutt said.

In the cloud: VAR value remains in customization, face time

HP execs said the VARs like Rutt will remain the face of the vendor into these accounts. "Historically, the VAR is the trusted advisor in SMBs," said Lisa Wolfe, worldwide midmarket strategy and marketing leader for TSG. And the new model will not change that. The VAR can customize the USA.NET offerings, "add its own services, the special sauce, vertical capabilities" to what USA.NET offers, Wolfe said.

The software services world is getting crowded; indeed, it sometimes seems there are more cloud offerings available than customers to use them. Microsoft made its own hosted Exchange and SharePoint services widely available on Monday, two days before HP's USA.NET news. That availability puts Microsoft even more into contention with partners like USA.NET that host Microsoft technology. And, to make things more complicated, HP itself hosts, via EDS, Exchange and other services for enterprise accounts.

Campbell and Wolfe acknowledged that there may be contention between HP-hosted and partner-hosted mail or other services down the road, but for now the two efforts target very distinct market segments.

Doug Howard, president of USA.NET said he's not worried about competing with Microsoft per se. For one thing, his company's services let VARs own the customer relationship and bill for the services. With Microsoft online services, the vendor bills and owns the customer. "Most VARs want the account relationship," Howard said.

Rutt was also sanguine about Microsoft-hosted services entering the fray.

"The customers and the environments are still local. It's like politics," she said. "We have an advantage with that customer because we know their environment really well and things are still complicated. It's not like you flip a switch and it works. You need policies and procedures documented."

Adding Microsoft to the mix adds a little "mania" or buzz to the notion of hosted services that may get more people thinking about them as a delivery option.

Scott Jenkins, president of The EBS Group, a Kansas City solution provider, said more companies of all sizes see the advantage in offloading common applications. "When it comes to mail and Exchange-like functionality, the notion of making that somebody else's responsibility under a cheap SLA is pretty compelling," Jenkins said.

"The difficulty is in the help desk aspect. Small businesses don't want to deal with their sales guy or finance person calling with complaints about email," he said. Those issues must be resolved but who does that has to be spelled out in advance," he said.

Cloud-on-cloud violence

Microsoft has pledged not to undercut hosting partners' pricing. However, as one long-time Microsoft partner noted, Microsoft faces free or near-free competition from Google in hosted email and will do whatever it takes to keep Google from gaining traction in commercial email. If that means dropping its prices below that of hosting partners, it will do so "in a heartbeat," he noted.

Howard said USA.NET has added 60 VARs a month for the past few months and hosts about 250,000 Exchange seats and 750,000 non-Exchange mail seats. The beauty for VARs is that they can add their own managed services offerings and customizations to hosted Exchange and tie them all up in a pretty ribbon for customers.

"The margin opportunity can be 20% to 35% ranging on what the VARs actually sell at," said Howard. "I'm surprised at how much they can charge when they bundle value atop our services. Some are doing monitoring and review work."

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